Audit finds Corning tribe mismanaged millions in casino funds

Amid an epic battle for control of a Northern California tribe and its lucrative casino, a new audit is leveling allegations that former tribal leaders mismanaged millions of dollars of assets in improper spending, salaries and poorly researched investments for the past dozen years.

The audit for the Paskenta Band of Nomlaki Indians, which runs the Rolling Hills Casino near Corning off Interstate 5 and has been deeply split between two factions, found that council leaders “have fallen far short of their legal and ethical obligations to the tribe” by incurring expenses that include $17 million in private jet travel – some of which appeared to be for personal and family business – and $450,000 for tickets to the World Series, college basketball’s Final Four and other sporting events.

The release of the audit comes as 216 adult members of the tribe prepare for a Sept. 13 vote on who should run the tribal council and a dispute over who are its legal members. The council oversees distribution of $54,000 in casino revenue annually for each member of the band.

“I think it speaks for itself,” tribal Treasurer Ambrosia Rico said of the audit by WilmerHale, a Washington, D.C., law firm that said it acted on behalf of the tribe rather than either faction. “I mean, seriously, it’s pretty clear as to where our money has gone and what’s happened to it and who spent it.”

Premium content for only $0.99

But one of the ousted officials disputed whether the audit was fair and said it failed to take into account the part he played in getting the tribe’s federal recognition renewed in 1994 or his leadership in establishing the casino.

“They’re not objective,” former economic development director John Crosby said. “You can spin those things a lot of different ways, and that’s what I believe happened in that report

“Tribes don’t look like the corporate world.”

The tribe’s turmoil stems from the annual General Council meeting April 12 during which tribal Chairman Andrew Freeman suspended three council members and dozens of other members over what he said were questions of their eligibility.

Since then, the ousted council members and those who replaced them have fought for control in a conflict that has included an armed standoff between the two factions outside the casino, a restraining order by a federal judge and claims of a cyberattack that destroyed some casino computer records.

The 78-page WilmerHale audit, which was dated Monday and released to tribal members, is the product of a mediated settlement between the two factions that called for an independent audit.

Freeman said Tuesday that both sides agreed during mediation that WilmerHale would conduct the audit and that the firm “is respected by the whole tribe.”

But an attorney for the ousted council members raised questions Tuesday about the impartiality of the audit, saying his clients had never signed off on having WilmerHale conduct the study.

McGregor Scott, the former U.S. attorney in Sacramento, represents ousted council members Leslie Lohse, Geraldine Freeman (a cousin of the chairman) and David Swearinger, as well as Crosby, the tribe’s former economic development officer and one-time FBI agent in Sacramento. All of them sat for interviews with auditors from WilmerHale and the Fulcrum Financial Inquiry accounting group.

“Despite the fact that the settlement agreement entered into by the two sides called for the selection of a mutually acceptable independent firm to do the investigation, the Lohse-Crosby group had no input into the selection of WilmerHale,” Scott said. “From its inception, this creates questions of legitimacy around the report.”

Scott said Tuesday he would not comment further, noting that his clients “have just received the report today and it is being reviewed.”

The document, which was obtained by The Sacramento Bee and secured with a program that prevented it from being printed out or copied, details spending by council officials that raised questions about home improvements; at least one trip to Disneyland; trips by Lohse to watch her son Kyle pitch in the 2011 World Series for the St. Louis Cardinals; purchase of floor-level Sacramento Kings season tickets and tickets to the 2010 Masters golf tournament; and other items.

“Although the senior tribal administrators claimed that most of their spending was for reasonable business purposes, our inquiry suggests that serious questions exist about whether substantial amounts of tribal funds were actually spent for the senior tribal administrators’ personal benefit,” the audit states.

The auditors added that because of poor or, in some cases, nonexistent bookkeeping records and the refusal of some officials to cooperate with the audit, it is difficult to determine with accuracy the state of tribal spending.

However, the audit found a number of expenses that raised questions, including:

• $93 million in investments over the last 12 years in companies, real estate or gold that were made without any comprehensive investment strategy. “Many of these ventures were unproven, high-risk, start-up companies,” the audit said. Crosby flatly rejected that finding. “A lot of

these investments are long-term,” he said. “Was Apple successful right away?”

• Excessive overhead and compensation over the last dozen years that ate up at least $61 million of the $191 million left over after tribal members were paid their distributions. (The audit said reviewers were unable to account for about $10 million in spending).

• Payments of $819,000 to senior administrators for serving on the boards of tribal entities that the audit said were made without tribal council discussion or approval.

• A penchant for travel that included using the private jet for dozens of short hops between Chico and Redding or Corning and Sacramento, instead of driving at much less expense. Other trips “appear to have been partially or wholly personal,” the audit found, including 134 flights to Glendale, Ariz., by the Lohse family over a 32-month span (a Lohse son and his family live in Glendale, the audit said); and 40 flights by the Crosby family to Provo, Utah, over a 28-month period (Crosby’s daughter attended college in Provo, the audit said). Crosby said frequent trips are the nature of economic development efforts and that they were for business interests.

“Over the last 12 years, much of the leadership and senior management of the tribe has betrayed the trust of the general membership in significant ways,” the audit declared. “There was an almost total failure to comply with the tribe’s laws and requirements on governance and financial management; excessive amounts were spent on overhead, including compensation; and there was irresponsible management of the tribe’s financial assets.”

Andrew Freeman, who said Tuesday he has been chairman for more than four years, said he wished he had done more before taking action in April.

“I’m a people person, and they misled me,” Freeman said. “I believed in them so much, and the worst part about it is I do feel like it’s part of my responsibility because I trusted them so much... .”